BH - Biglari Holdings

[merkhet]

Gio-- apologies if this has been asked before or if it sounds sarcastic-- its not. But is there any one specific thing that Biglari has done that you don't like?

 

For example were you in favor of the dual share class structure? What about the name licensing /change in control contract?

 

Sorry guys,

I am at home with a terrible flu and haven't checked the board for the last 3 days...

 

There are a lot of things I don't like about Biglari right now: the most obviuos is the compensation agreement, I obviously think it would be much better to pay Biglari far less than shareholders are doing right now!

 

But what matters to me the most is if I see rational behavior, or not.

 

I try to put myself in Biglari's shoes, and ask what I would do: he finds himself managing a company which he owns only a small percentage of... But his goal should obviously be to buy much more of BH over time, and to get control over it through direct ownership.

 

Could he ever achieve that goal without an income? No.

Therefore, he is not working for us for free. How much is he asking to be paid then? His roles are both the one of CEO and the one of funds manager... It seems to me he asks to be paid as much as any external CEO would demand, and as much as any external funds manager would demand.

 

As things stand right now, I don't think it could be any different.

 

Of course, we will continue monitoring how the situation evolves: at one point I would like to see him tie his personal wealth solely to the BH stock performance. But right now it simply is not possible: if you think about it, in fact it is the right opposite! The more BH stock price appreciates, the less he will be able to buy...

 

What I want to see him doing right now is to continue accumulating BH stocks, as I try to accumulate them myself.

 

When he finally owns enough, should he go on asking to be paid a very generous incentive, I will question the rationale behind such a decision.

 

Gio

 

Actually, yes. I believe this is what Henry Singleton did with Teledyne. He bought back 90% of the stock over the lifetime of the company. Of course, this requires patience, which might be lacking w/ Mr. Biglari.

[muscleman]

He just completed a capital raise through the rights offering.  He hasn't retired any of the shares he buys through the Lion Funds.  I highly doubt he is going to sell stock at $250 and retire it over $400 months later.  I would not hold my breath for a true share repurchase / cancel.

 

Agree he won't cancel the shares, but the outcome is similar. 

 

As for the capital raise at $250 and repurchase at $400, well it's already happening.  The shares are just kept in the Lion Fund and I'd bet we see him sell the BH shares back into the market if BH stock starts selling for a much higher price.  I see nothing illegal or immoral with this. Raise capital efficiently at $250.  Buyback vastly undervalued stock at $415 and resell/issue stock at $700+ (Or whatever price you think he'd be willing to sell back BH shares into the market).

 

Mr. Big bought BH through the lion fund so:

1. He could vote on these shares to get more control of the company.

2. He could earn an incentive fee if BH stock price goes up.

 

If he cancels the shares instead, he could have neither of the above benefits.  ;)

[frugalchief]

Thanks!

 

Does anyone know what percentage of the Lion Fund I (the original Lion fund with outside investors) is owned by Biglari Holdings?  I know the majority of Lion Fund II is BH capital.

 

The recent purchases of BH stock by Biglari Capital was done in the Lion Fund I.

 

BH share of TLF - 52.1%

BH share of TLF2 - 96.3%

 

Global...

 

I was wrong.  Those were 2013 #'s.

 

For YE 2014:

 

BH share of TLF - 61.6%

BH share of TLF2 - 95.8%

[BTShine]

He just completed a capital raise through the rights offering.  He hasn't retired any of the shares he buys through the Lion Funds.  I highly doubt he is going to sell stock at $250 and retire it over $400 months later.  I would not hold my breath for a true share repurchase / cancel.

 

Agree he won't cancel the shares, but the outcome is similar. 

 

As for the capital raise at $250 and repurchase at $400, well it's already happening.  The shares are just kept in the Lion Fund and I'd bet we see him sell the BH shares back into the market if BH stock starts selling for a much higher price.  I see nothing illegal or immoral with this. Raise capital efficiently at $250.  Buyback vastly undervalued stock at $415 and resell/issue stock at $700+ (Or whatever price you think he'd be willing to sell back BH shares into the market).

 

Mr. Big bought BH through the lion fund so:

1. He could vote on these shares to get more control of the company.

2. He could earn an incentive fee if BH stock price goes up.

 

If he cancels the shares instead, he could have neither of the above benefits.  ;)

 

Yes! Thank you.  Those are important points I forgot to add.

 

[Txvestor]

I have used my cash reserve today.

Partly I have bought more FFH, partly I have bought more BH.

Mostly I have used it to buy a new investment.

 

Right now my portfolio allocation is:

48% FFH

22% BH

15% OAK

15% fourth investment

 

Cheers,

 

Gio

 

Can you share broadly what is this new investment? No need for specifics, but commercial real estate? Business in a specific sector? Etc. If so what are the business metrics etc.

I'm just trying to see where value oriented people are finding to put capital to work nowadays, because, i'm finding it to be a very difficult arena. Everything I look at is amped up by easy money, and people bidding up assets appear to have a much higher risk appetite than myself. Worse yet they are doing it with borrowed money and margin, or maybe they are right and I am wrong. But hopefully the central banksters have not rewritten the book by manipulating so much that we value investors get hosed.

[stahleyp]

Gio is out of cash? Sign of a market top. ;)

[frugalchief]

Am I correct, in layman terms, at saying that TLF2 has essentially borrowed against 1,250,000 CBRL shares it owned?  But is required to pay (in CBRL shares or in cash) the loan in June 2017?

 

I know it says "Forward Sale Agreement (obligation to sell)" and "Prepaid Forward Variable Agreement."

 

Never seen this before, just want some validation.

 

1. On February 5, 2015, The Lion Fund II, L.P. ("TLF II") entered into a prepaid forward variable agreement with an unaffiliated counterparty, pursuant to which TLF II received a cash payment of $135,095,500 in exchange for agreeing to pay the value of up to 1,250,000 shares of the issuer's common stock on future dates. A preliminary payment from TLF II to the counterparty will be due on June 9, 2017 based on the volume-weighted average share price ("VWAP") on June 6, 2017 ("Initial Payment"). If the VWAP on June 6, 2017 is less than or equal to $131.32 (the "Floor Price"), then the Initial Payment will be equal to the June 6, 2017 VWAP times 1,250,000 shares; if the June 6, 2017 VWAP is more than the Floor Price but less than or equal to $157.58 (the "Cap Price"), then the Initial Payment will be equal to the Floor Price times 1,250,000 shares; (Continued in Footnote 2)

2. and if the June 6, 2017 VWAP is greater than the Cap Price, then the Initial Payment will be equal to (1) 1,250,000 times (2) an amount equal to the Floor Price plus the amount by which the June 6, 2017 VWAP exceeds the Cap Price. A true-up payment based on the VWAP for the valuation dates for the transaction (the "Valuation Dates"), occurring during the period beginning on June 14, 2017 and ending on September 19, 2017 ("Settlement Price") will be computed. TLF II may elect to make delivery of shares three business days after each Valuation Date in lieu of a cash payment.

 

http://www.sec.gov/Archives/edgar/data/1067294/000120919115011082/xslF345X03/doc4.xml

[ragu]

Am I correct, in layman terms, at saying that TLF2 has essentially borrowed against 1,250,000 CBRL shares it owned?  But is required to pay (in CBRL shares or in cash) the loan in June 2017?

 

frugalchief,

 

Yes and mostly yes. TLF will need to make an additional payment, likely in late September of 2017, if CBRL sells for more than $157.58 as of June 6, 2017 (unlikely in my view, unless Sardar gets on the board).

 

By my calculations, the implied annual rate of interest on this borrowing for the ~2 years and 4 months is 8.72% (if CBRL's price is within the collar range; lower if price is below floor, higher if price is above cap at settlement).

 

Obvious benefits are continuing stock ownership, tax deferral and the ability to put that cash to work.

 

Interesting hedge, this one.

 

Best,

Ragu

[giofranchi]

Actually, yes. I believe this is what Henry Singleton did with Teledyne. He bought back 90% of the stock over the lifetime of the company. Of course, this requires patience, which might be lacking w/ Mr. Biglari.

 

Well, if your aim is to get control by direct ownership, buybacks are simply not a strategy imo. Buybacks should be the right reaction to how the share price is behaving. If it is too low, it might make a lot of sense to buy back shares.

But this is not something you truly could plan... The share price could remain too high for a very long period of time! And in the meantime, without a double class share, and without control through direct ownership, you risk losing the company... Or at least you risk losing the freedom to make all the decisions you think are the best!

 

Furthermore, how much of Teledyne did Singleton own when he started managing it?

 

Gio

[giofranchi]

Gio is out of cash? Sign of a market top. ;)

 

I like to think that, should a market correction come, the first half of my portfolio, BH, PSH, and OAK, might be hedged by the second half, FFH.

 

In other words, I let FFH hold all the cash and all the hedges on my behalf.

 

Cheers,

 

Gio

[merkhet]

Actually, yes. I believe this is what Henry Singleton did with Teledyne. He bought back 90% of the stock over the lifetime of the company. Of course, this requires patience, which might be lacking w/ Mr. Biglari.

 

Well, if your aim is to get control by direct ownership, buybacks are simply not a strategy imo. Buybacks should be the right reaction to how the share price is behaving. If it is too low, it might make a lot of sense to buy back shares.

But this is not something you truly could plan... The share price could remain too high for a very long period of time! And in the meantime, without a double class share, and without control through direct ownership, you risk losing the company... Or at least you risk losing the freedom to make all the decisions you think are the best!

 

Furthermore, how much of Teledyne did Singleton own when he started managing it?

 

Gio

 

If memory serves, Singleton owned 1% initially, which became 10% through buybakcs -- though I'm not super confident in those numbers.

 

Also, if you are a good capital allocator that doesn't try to screw his shareholder base, usually activist investors don't come after you. I can't recall an instance where a good capital allocator (w/ a happy shareholder base) has been the target of an activist.

[frugalchief]

Thanks ragu

 

Am I correct, in layman terms, at saying that TLF2 has essentially borrowed against 1,250,000 CBRL shares it owned?  But is required to pay (in CBRL shares or in cash) the loan in June 2017?

 

frugalchief,

 

Yes and mostly yes. TLF will need to make an additional payment, likely in late September of 2017, if CBRL sells for more than $157.58 as of June 6, 2017 (unlikely in my view, unless Sardar gets on the board).

 

By my calculations, the implied annual rate of interest on this borrowing for the ~2 years and 4 months is 8.72% (if CBRL's price is within the collar range; lower if price is below floor, higher if price is above cap at settlement).

 

Obvious benefits are continuing stock ownership, tax deferral and the ability to put that cash to work.

 

Interesting hedge, this one.

 

Best,

Ragu

[giofranchi]

Merkhet,

Of course you might be right... But Singleton never struck me as very interested in accumulating wealth... Though a fantastic engineer + capital allocator, it doesn't seem to me he had a "Buffett" personality... Instead, he had more of a "Munger" personality... Or a "Franklyn" personality... Very interested in many things other than the accumulation of personal wealth.

 

Though I like his personality very much, I don't blame either someone whose first goal is the plain and simple accumulation of personal wealth!

 

Furthermore, in business you can never tell: I remember Watsa saying to FFH shareholders the company won't ever be sold, because he controls it through the ownership of class B shares... Evidently, even someone as widely respected as Watsa looked for control and got it through the issuance of a double class share.

I remember Munger referring to Buffett during the first years at the helm of Berkshire as "a serial acquirer"...

 

Surely Biglari is very ambitious and thinks about his own personal wealth very much! But I still think he will behave rationally: today his convenience lies in buying as many BH stocks for the lowest price possible, at one point his convenience will lie in making the value of his stocks increase as much as possible.

 

That his interests coincide with mine might just be a coincidence due to the fact we have the same age. ;)

 

Gio

[ragu]

 

Indeed, this seems more like an interesting hedge than an outright exit. 

 

The original filing that announced the intent to sell said that it was a variable prepaid forward contract. I was surprised by the comments that seemed to assume this was an outright sale.

 

I wonder if he has a specific use of capital in mind for the cash. 

 

I suspect that this, along with the raise of capital, is a battening down of the hatches at BH.

 

Of course, now that I've surmised that, watch out for an announcement re. an acquisition/stock purchase:-).

 

Best,

Ragu

[Liberty]

Merkhet,

Of course you might be right... But Singleton never struck me as very interested in accumulating wealth... Though a fantastic engineer + capital allocator, it doesn't seem to me he had a "Buffett" personality... Instead, he had more of a "Munger" personality... Or a "Franklyn" personality... Very interested in many things other than the accumulation of personal wealth.

 

Agreed on the personality type, though obviously that didn't stop him from doing incredibly well. And another good example of this would be Ben Graham himself. Quite the renaissance man.

 

Singleton owned 20% of Teledyne at the end, despite never having bought a share (he got 1% in founder's shares at first, that's it). He was also on the board of Apple in the late 70s, so he might have gotten some stock at that time too.

[frugalchief]

Am I correct, in layman terms, at saying that TLF2 has essentially borrowed against 1,250,000 CBRL shares it owned?  But is required to pay (in CBRL shares or in cash) the loan in June 2017?

 

frugalchief,

 

Yes and mostly yes. TLF will need to make an additional payment, likely in late September of 2017, if CBRL sells for more than $157.58 as of June 6, 2017 (unlikely in my view, unless Sardar gets on the board).

 

By my calculations, the implied annual rate of interest on this borrowing for the ~2 years and 4 months is 8.72% (if CBRL's price is within the collar range; lower if price is below floor, higher if price is above cap at settlement).

 

Obvious benefits are continuing stock ownership, tax deferral and the ability to put that cash to work.

 

Interesting hedge, this one.

 

Best,

Ragu

 

Is it fair to say that Biglari has no interest now (figuratively) to seek a board seat and/or other initiatives to increase value at CBRL, since that might increase price = increase amount he would have to payback in 2017?  Of course there's financial interest to raise value & price for the remaining shares TLF holds.

 

I like the move to hedge it and "cash out" part of the holdings.  I could see him using it to buy more BH shares, increase holdings in the investment(s) that he's buying and withholding through the confidential waiver, or it's a far shot, use it to help BH buy a larger operating business (100m+) since a purchase that large would wipe out BH's cash. :o

[giofranchi]

 

Restaurant sales show sharp increase in January

 

 

 

Feb 11 2015, 10:37 ET | By: Clark Schultz, SA News Editor   

 

 

Chain restaurants recorded their strongest pace of same-store sales in six years during January at 6.1%, according to data from Black Box Intelligence.

An easier weather compare, $2 gas, and a more stable economic backdrop were factors.

Traffic was up 2.4% during the month.

The sales lift was delivered without much help from McDonald's which saw a marginal +0.4% comp gain.

Comp sales in the Midwest improved 11.2% after the region had a much easier time with weather during January than a year ago.

Chains with a large focus in the Midwest include Steak 'n Shake (NYSE:BH), Jimmy John's, Culvers, and Bob Evans (NASDAQ:BOBE).

 

 

Gio

[gfp]

Proxy out today -

http://www.sec.gov/Archives/edgar/data/93859/000120677415000458/biglari_prec14a.htm

 

 

edit:  And here is the rest of the detail on the Forward agreement with JPMorgan ->

 

http://www.sec.gov/Archives/edgar/data/1067294/000134100415000121/0001341004-15-000121-index.htm

[gfp]

Groveland proxy

 

http://www.sec.gov/Archives/edgar/data/93859/000089706915000122/cg525.htm

[TheValueDude]

I feel like this annual meeting could be produced by WWE and sold on PPV... Maxim girls & Steakburgers everywhere... Only to have Jonathan Dash (anybody remember him?) come out of the crowd & hit Swenson with a chair before the final votes are taken.

[Jurgis]

Only to have Jonathan Dash (anybody remember him?) come out of the crowd & hit Swenson with a chair before the final votes are taken.

 

I am pretty sure Mr. Big can do this honor himself.  ;D

[OracleofCarolina]

Groveland proxy

 

http://www.sec.gov/Archives/edgar/data/93859/000089706915000122/cg525.htm

 

I know we will see a letter from Biglari shortly challenging a lot of the material in this proxy

[wescobrk]

I understand taking to task underperforming the S&P but the rest of it doesn't make a lot of sense.

Swenson talks a lot about G&A and SG&A but he doesn't mention a thing about they are building the franchise network. Everyone knows this as it is spelled out in the last few years shareholders letters. A classic straw man argument.

He doesn't tell us who the CEO of Steak N Shake will be. WTF? We are suppose to remove Sardar and incur between $78 and $120 million for the change of control for a guy we don't even know who he is?

He bought (Swenson) a whopping 345 shares and states they have owned since 2012 but omits that they sold shares over that time frame as well.

 

I like his S&P underperformance argument but the rest looks like someone that doesn't like Sardar personally so therefore we should incur $100 million for a guy he doesn't even know who will take over Steak n Shake and for someone that has 345 shares or his whole fund owns $3k.

He clearly doesn't have any conviction in his idea to put such a small amount of money.

 

Maybe I'm missing something but it doesn't make sense to me except for the underperformance of the S&P.

[OracleofCarolina]

Are the S&P comparisons adjusted for the rights offerings?

[mateo999]

I understand taking to task underperforming the S&P but the rest of it doesn't make a lot of sense.

Swenson talks a lot about G&A and SG&A but he doesn't mention a thing about they are building the franchise network. Everyone knows this as it is spelled out in the last few years shareholders letters. A classic straw man argument.

He doesn't tell us who the CEO of Steak N Shake will be. WTF? We are suppose to remove Sardar and incur between $78 and $120 million for the change of control for a guy we don't even know who he is?

He bought (Swenson) a whopping 345 shares and states they have owned since 2012 but omits that they sold shares over that time frame as well.

 

I like his S&P underperformance argument but the rest looks like someone that doesn't like Sardar personally so therefore we should incur $100 million for a guy he doesn't even know who will take over Steak n Shake and for someone that has 345 shares or his whole fund owns $3k.

He clearly doesn't have any conviction in his idea to put such a small amount of money.

 

Maybe I'm missing something but it doesn't make sense to me except for the underperformance of the S&P.

 

The franchise network is growing more disenfranchised (pun intended) daily. What exactly do you think is being built by Sardar?  Every franchisee I've spoken with vehemently hates the guy and most wanted to sell me their business.